ISO 20022 Financial Messaging Standard Neither a Tower of Babel nor an Esperanto
The ISO 20022 financial messaging standard began with the ambition of creating a common protocol for the entire financial services industry. After several years of effort, the standard has evolved into what promises to be a common business model that is flexible enough to incorporate current industry standard protocols, including FIX.
The story of the Tower of Babel tells of the effort to build a tower to the heavens. To stop the endeavour, God is said to have made each worker speak in their own tongue. Tellingly, without a common language, the tower never reached the heavens.
Esperanto, on the other hand, was invented in the late 1800s with the goal of creating a common international language. Today, while Esperanto still has devoted speakers around the world, it never gained – or maintained – popular support.
Efforts at developing a common financial messaging protocol have faced similar challenges: either too many different languages, or only one which has failed to gain widespread appeal.
An alternative approach – a middle road – is emerging within the International Organization for Standards (ISO). In June 2008, it was agreed that, where a strong business case was identified, the ISO 20022 financial messaging standard could support a domain specific syntax, such as FIX.
The relationship between ISO financial messaging standards and FIX is not new. Previous cooperation between SWIFT and FIX Protocol Ltd resulted in reverse engineering the FIX 4.3 pre-trade and trade messages into the ISO 20022 model. When concerns were raised that the industry perceived that the FIX message syntax would be rendered obsolete by ISO 20022 XML syntax, which was never the intention, FPL reduced its participation in the ISO 20022 process, but never fully abandoned the effort. With renewed and improved cooperation between FIX Protocol Ltd and SWIFT, the FIX 5.0 version underwent similar reverse engineering to ensure its on-going relevance within the ISO 20022 model.
XML and the proliferation of messaging standards
The evolution of messaging standards demonstrates the challenges faced by ISO in creating a messaging standard that included a syntax that was both robust and flexible enough to gain and maintain industry-wide support.
Created during the 1990s, and based on an early document markup standard SGML, the goal of XML was to create a format that could be used across a number of different applications. Its simple, self-describing format and assumed pervasiveness led to XML quickly being used as a messaging syntax by several financial organizations. In quick succession, several variations sprung up, including XBRL, FIXML, RIXML, MDDL and FpML.
In response to this growth and the onslaught on XML’s perceived dominance, a new initiative emerged, aimed at unifying various standards, (including emerging XML standards), into a common standard with a common XML syntax. It was to be known as ISO 20022.
One of the key drivers for this convergence within the securities banking segment came from the Global Straight Through Processing Association (GSTPA). GSTPA had planned to base its messaging standard on the planned ISO 20022 XML messaging standard. In the spirit of convergence and due to XML’s dominance, the FIX community, with SWIFT’s assistance, reverse engineered the pre-trade and trade messages from FIX 4.3 into the ISO 20022 model. The burst of the internet bubble coincided with the demise of GSTPA, while the information technology view that XML would be the only message syntax also waned, thus slowing momentum for convergence.
A standard for managing a messaging standard
ISO 20022 is not a traditional messaging standard. Rather it defines a standard for the processes for creation and maintenance of the standard. This is an important evolution and follows the incorporation of process methodology standardization within ISO, such as the ISO 9000 and ISO 14000 quality process standards, and the realization that message syntax itself will evolve over time.
The ISO 7775 standard was primarily concerned with the standardization of message syntax used on the SWIFT network. ISO 15022 based on ISO 7775 and SWIFT’s proprietary messages was an initial step away from this methodology and laid the groundwork for ISO 20022. As a result SWIFT largely dominated these standards. With the aim of unifying disparate standards across the financial services, ISO 20022 was officially launched and required a broader governance model.